SYDNEY, March 12 Reuters) - World No. 2 iron ore miner Rio
Tinto Ltd/Plc said on Wednesday it may sell more ore in spot
markets, where returns still exceed long-term contract prices
despite a big rise in the price some steel mills are preparing
to pay.

Rio has been pushing its customers to pay a premium for
Australian ore from the Pilbara region to compensate for a
price differential on shipping costs versus material from
Brazil's Vale.

"Despite repeated urging on our part, Rio Tinto iron ore
from the Pilbara continues to be sold without the premium we
believe it merits for being so much cheaper to import than iron
ore from elsewhere, a fair return for the saving on freight,
the natural premium of geographic proximity," Sam Walsh, chief
executive of Rio's iron ore arm, told an industry conference in
Perth.

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"Until some recognition of the natural premium of
geographic proximity is possible, and while the spot market
continues to reward those without long-term benchmark supply
contracts with customers, then we will do what we can to secure
an appropriate return for our shareholders," Walsh said.

Contract iron ore prices are set each year by the big three
mining companies -- Vale, Rio and BHP Billiton Ltd/Plc -- after
closed negotiations with big steel producers in Europe, Japan
and more recently China

Vale last month reached agreements with steelmakers to sell
its ore for 65 percent to 71 percent more in 2008 than in the
previous year. Rio and BHP have yet announce any price deals.

"There is nothing imminent, but we are patient people,"
local media quoted Walsh as saying at the conference.

"A couple of years ago it wasn't until June that the price
was settled," he said.

Spot iron ore sells for about $200 a ton, versus around
$108 based on Vale's latest agreements, while it costs roughly
about $67 a ton to ship ore to China from Brazil versus $23 a
ton from Australia, according to Australia & New Zealand
Banking Corp commodities strategist, Mark Pervan.

"You can see why Rio wants to sell more into spot," Pervan
said. "Right now they are leaving a lot on the table."

Rio had said in December it would become more active in the
spot market while the discrepancy existed, announcing it would
initially sell up to 15 million tons of iron ore at spot.
Before that, Rio had little, if any, exposure to spot sales.

BHP has launched a hostile offer worth $139 billion for
Rio, arguing both companies' operations would benefit from a
unified group. Rio has rejected to offer, saying it sees plenty
of scope to grow on its own.

Rio is expanding production at its Australian Pilbara iron
ore operations to 220 million tons by 2009.

Rio said separately on Wednesday it has approved a $475
million project to boost iron ore concentrate production at its
Iron Ore Company of Canada (IOC) unit to help meet strong
global demand.